Friday, 24 June 2016


So here we are. The UK has voted to leave the EU. Thankfully the campaign is now done and we get to look forward to the joy of a bunch of party leadership elections, which of course everyone in the UK is delighted about (about as much as eating a bag of nails). What we can finally do is start to assess the economics of the vote and consider the UK's role going forward in the defence sphere.

As predicted, the UK pound has fallen in value against a variety of other currencies. As I type this the Pound has fallen to around $1.36, though as you might imagine the exact number fluctuates minute to minute. Against the Euro the Pound has fallen to 1 Euro 20 (still don't have a Euro symbol). Amazingly enough many people still don't seem to understand the value of this. Nor do they seem to understand that despite the ominous sounding term "weakening", this is not the death of the British economy. 

To put this into perspective, back in March/April the Pound bottomed out at about £1 = $1.38. The result of this was the biggest month to month rise in exports since records began in 1998, a jump of 11.2%. Total exports for April (by value) came close to reaching a record high. Interestingly that record high was set in 2013, as the Pound slumped once more. This should come as absolutely no surprise to anyone. When your currency goes down in value, your exports become cheaper. When goods become cheaper, they become more attractive to buy. This is not highly advanced economics. This is pretty much basics.

The FTSE 100 also fell today and this is where the amusement for me really began. My Facebook blew up with people moaning about how 'Leave' voters had wrecked the economy and how doddery old pensioners had ruined the lives of their children etc. Twitter took a similar tone. The amount of people blowing smoke up their own arse about how smart and educated and progressive they were for voting 'Remain' has been astounding. Though at least we now know that most people who voted 'Remain' seem to share at least one trait for certain; arrogance.

Amazingly enough it all went a bit quiet anytime I pointed out to someone that within half an hour of opening the FTSE 100 was actually trading higher than it had been 8 days ago. It's understandable to a degree. People can relate to big jumps and big drops. It's easy to digest and it makes an impactful headline. By comparison it's much harder trying to explain to a mass audience that this was simply the markets realising they had completely messed up their referendum predictions and as such over valued the market in the wake of the murder of Jo Cox (and yes, those people who tried to politicise her death do actually shoulder some of the burden for this). Smug face on though, some of us did actually point out that this was happening as early as Monday. And by this point in the day, having been interrupted repeatedly, the FTSE 100 has now recovered to within 2.3% of where it started. So much for the Armageddon being pushed at the start of the day.

So what we look set for then is actually some happy times over the next couple of weeks and months. It should take about 8-10 weeks for the export boosts to start showing through in the figures, so keep an eye out for that. Inflation is a little bit harder to track in terms of when it kicks in, but the signs are already there. There has been a relentless barrage of jokes this morning about Mars bars rising to £45 etc, which means that even if people don't understand the underlying economics, they are at least aware that inflation is likely and have already raised their personal inflation expectations. What we're likely to see then is precisely the behaviour we want to see, which is people going out and spending money because they think items will become more expensive later. 

The noise created by spending related to Euro 2016 will probably boost figures beyond where we would actually expect them to be in the long run, though this might be offset by a small amount due to the ever traditionally and reliably shit British weather we've been having lately (and one of the reasons I'm an advocate of an Essential Prices Index) . But once that noise has passed we should see spending rising and thus growth rising (supported by the increased exports) and inflation picking up a bit. The only real serious problems facing the economy are 1) making sure the Bank of England doesn't fuck up the whole process by doing something stupid, and 2) making sure that politicians don't fuck up the whole process by doing something stupid. It would be marvellous if just for once the pair of them could resist the temptation to incessantly tinker with the economy instead of just letting it do it's thing for a bit.

The question on everyone's mind though is where do we go from here, especially in regards to our relationship with Europe?

Lots of people are pushing for the European Free Trade Association (EFTA) path, on the basis that this would provide a smooth transfer. My general opinion is that in order to avoid a backlash any agreement with the EU should fulfil three main criteria:
  1. It should not involve government payments to the EU
  2. It should not involve elements of UK law or regulation being decided by EU
  3. It should not involve the free movement of people from the UK-EU
I argue this on the basis that these are essentially three of the main arguments that the official Leave campaign was sold on and an agreement which breaches any of the these three fundamentals goes against what people thought they were voting for. I'm actually quite alarmed with how quickly some people want to jump straight back into an agreement of convenience with the EU. While that seems attractive in the short haul, people didn't vote leave for the short term, they voted for the long term.

Considering that the UK will remain an EU member until at the minimum 2 years from the activation of Article 50, that gives the UK plenty of time to work with. I have to say I'm not buying a lot of the arguments about huge time frames. Experience has taught me that when people really want to get a deal done, it gets done. Considering the UK and the EU already have a common starting point to work from (the status quo) and a defined end limit to work to (WTO rules), it really should not be beyond the wit of Parliament and the civil service to come up with something that satisfies all parties (though you never know). As long as both sides are grown up about it, it really shouldn't prove that cumbersome to strike a fair deal (notice use of the word "fair" and not "perfect").

I also think that the UK should make immediate steps to seek out other trade deals by splitting its efforts down a number of main channels, aside from the EU. The first is a team designed to talk with Mexico, South Korea, Canada, and other countries with which the EU has a trade deal, either confirmed or in principle. The opening gambit is fairly simple "we already have a deal in place, would you simply like to continue to trade on these terms?". Followed by "can we discuss beneficial changes?"

On top of that channels are split off specifically for some of the major economies like China, India, the US, Japan etc. One channel is set up to work specifically on emerging economies such as Nigeria, Vietnam and Indonesia. One channel is kept clear for "first come, first served" work from other channels, while supporting overflow of work from other channels when possible. Rather than taking a very conservative, lumbering approach to going about establishing trade deals, the UK should rather take a pro-active and aggressive approach to seeking them out. Channels (basically small teams of negotiators) hammer out the initial part of the deal, then pass it up the chain to a central group for the more detailed work if need be.

Some deals will move quickly, some won't. It's inevitable that some people will be more ameniable to quick negotiation while others will want to put the brakes on and argue the details into infinity. It just has to be accepted. But the UK should never cease to relentlessly strive, all out, to pin down as many agreements as possible in the shortest possible time. I'm also in favour of using interim agreements if necessary, essentially mini-deals, covering only those aspects which parties clearly agree to as stepping stones. While it's easier for legislators to handle one bill at a time and get everything resolved in one solid deal, I think the value of striking what are essentially partial, interim deals has long been overlooked. In many ways I'd hope this pioneering spirit on trade would encapsulate the mood of the country as a whole, to go forth and forge a new path and show the world not what it can do for Britain, but what Britain can do for it.

And on that note I'd like to turn to defence. This is after all a defence blog and hopefully, unless something particularly juicy happens in the realm of politics soon, normal service will by and large resume soon.

One of my big fears is that the referendum will leave people in Europe with the impression that the UK doesn't like them. It seems many Remain supporters have already jumped on this bandwagon and started portraying the Leave vote as some kind of exercise in mass xenophobia, which is not only highly insulting to those of us that count many non-British people as our friends, but also ignores the fact that survey data is now making it clear that a dissatisfaction with the EU government and its level of control over the UK were much more significant driving factors behind the Leave vote.

That is the message that I hope will be spread across Europe; It's not Europe we voted against, it's the European Union. The political body. The beaurecratic establishment that represents the EU on a day to day basis. These were the targets of our disdain and our distrust, not the people of Europe or their national governments. I think the UK needs to act quickly to reaffirm our committment to NATO and to our European partners, the role that we can play in their collective defence, and the relationships we have built over the years. 

I have always felt that the UK is in a prime place among the major European militaries to act as a building block of integration for smaller partners. I'm an active proponent of the idea that each time the Response Force Task Group sails south through the Med it should ideally have an array of allied vessels accompanying it all the way. The British army, navy and air force should spend - and this is just my opinion - a disproportinate amount of their training time working with smaller allies, helping them to slot into larger formations that they normally would not have access to, much as I think countries like France and Germany should be doing. 

I sincerely hope that 'Brexit' is embraced for what it means to me and what I think it should be; the chance to go out into the world, alone now but unafraid, and actually strengthen the bonds that we have, not to cut them off. To be a force for good, a positive contributor to the world in a way that I believe the EU is not. To not just be a European player, but a global player.

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